THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

SUZANNE MALVEAUX, CNN ANCHOR: Schools and offices emptied out as a quarter million public workers, directed civilians to underground shelters and subway stations. All of this the result dangerously high tension between the South and nuclear-armed North Korea, and the drill is receiving the approval of the U.S. government.

(BEGIN VIDEO CLIP)

P.J. CROWLEY, STATE DEPARTMENT SPOKESMAN: South Korea has made clear that it is prepared to defend itself, and it is taking appropriate actions in its self-defense.

(END VIDEO CLIP)

MALVEAUX: The threat of war between the two Koreas notched up alarmingly when North Korean artillery fired on a South Korean island last month killing four people, and there is heightened concern over North Korea's nuclear program. President Obama's top nuclear adviser now says that its nuclear capabilities are more advanced than Iran's. Amid all of this, our own Wolf Blitzer is heading to North Korea. Right now, he's in CNN's Beijing bureau. Wolf, tell us about your assignment.

WOLF BLITZER, CNN CORRESPONDENT: Suzanne, we're getting ready in the next few hours to get on a plane and fly from here in Beijing to Pyongyang with the governor of New Mexico, Bill Richardson. He's here with us right now. He's been invited by the North Korean government (INAUDIBLE) several times. This is an incredibly tense moment as you know, governor, right now. This indication that we're getting as the crisis seems to be escalating, how worried are you that it could simply get out of control?

GOV. BILL RICHARDSON, (D) NEW MEXICO: Well, I am extremely concerned, because the rhetoric, the actions by the North Koreans, the tenseness on (INAUDIBLE). I'm going there on a private mission. I'm not representing the U.S. government, but the invitation of the top officer from day one. I did able in the past to succeed with the North Koreans getting them to release American pilots, prisoners, the remains of our soldiers from the Korean War, get them into going into the negotiations.

So, my objective is to try to ratchet down the North Korean actions to see if there is a way that we can get a framework for some kind of discussions, but there's something going on there, and that's why I'm going.

BLITZER: In my conversations with the Obama administration officials in Washington before flying off here to China, they said to me they didn't tell you not to go, but they clearly were not enthusiastic about your mission this time, and they were concerned that the North Koreans were going to use you for their propaganda purposes. This is a concern they have. How do you deal with that?

RICHARDSON: Well, my first point is that six months ago, I got invited by the North Koreans, and at the request of the Obama administration, I didn't go. They kind of signed off that it was OK to go, as long as I emphasized that it was a private mission. I know they have concerns, but sometimes, citizen diplomacy, people-to-people diplomacy, I have experienced with the North Koreans.

They've invited me. I've succeeded with them in the past. And I think the situation is so serious right now that maybe a new voice will be able to help the situation.

You're not carrying any messages from Washington to Pyongyang?

RICHARDSON: No.

BLITZER: But you expect that they will give you a message to bring back to the president?

RICHARDSON: They invited me for a reason. Usually, they like to tell me something or they vent, or maybe what I can pick up is a way to diffuse the situation. You know, we have allies, South Korea. They're extremely concern. They're going through this drill. U.S. policy right now is being, I think, formed to deal with this new situation where the North Koreans are really taking a new aggressive step, not just rhetorically, but actions. And then China, and we're here today, they're key players, and maybe, there is an important role that they can continue to play.

BLITZER: Governor, hold on for a second. I want to bring in some other experts who are joining us now. Jack Pritchard is the president of the Korea Economic Institute in Washington, a former Clinton administration expert on North Korea. He was just there. Also joining us, Mike Chinoy, former CNN correspondent who's been to North Korea on many occasions.

He's now a senior fellow at the China Institute at the University of Southern California and Dr. Jim Walsh who's an expert on foreign policy, especially Asia at M.I.T. Jim, let me start with you. What is your biggest concern right now?

JIM WALSH, INTERNATIONAL SECURITY ANALYST: Well, my biggest concern is that someone is going to make a mistake, and we almost saw that two weeks ago with the shellings. It wasn't widely reported in the United States, but South Korea, in the middle of this crisis, accidentally shot an artillery shell near the DMZ, had to call North Korea and tell them it was a mistake, that they weren't launching a war.

So, I think Governor Richardson is exactly right. That it's time that someone, even if it's not a government official begin to talk to North Korea just so we don't end up in a place that no one wants to be out of miscalculation, misperception or error. That's my concern. And I think there is a danger of that right now.

BLITZER: Jack Pritchard, you were just there in North Korea. What did you see there that concerned you?

JACK PRITCHARD, KOREA ECONOMIC INSTITUTE: Well, I asked to go to Yongbyon I think as, perhaps, Mr. Richardson will be going as well, but what I didn't expect is what the North Koreans reveal to me at the time that they were in the process of constructing on their own a light water reactor. And in that discussion, they also revealed to me that they had a uranium enrichment facility there at Yongbyon. That was news.

And with that information, I briefed Dr. Hecker (ph) who followed me the following week, and he was able to, hopefully, at my urging to the North Koreans to go into the enrichment facility and see for himself that, in fact, the North Koreans have moved much further along in their capability, and perhaps, state-of-the-art of what they're doing with regard to uranium enrichment.

BLITZER: Mike Chinoy, you've been to North Korea on several occasions. Why do you think the North Koreans want these separate U.S. delegations including Governor Richardson to come in right now? They clearly know that when these Americans go back home, they're going to tell the world what they saw.

MIKE CHINOY, U.S.-CHINA INSTITUTE AT USC: I think the North Koreans are trying to send two signals. The Richardson trip is one of several that we've seen over the past few months, and there've been two messages coming from North Korea on these trips. On the one hand, the North has consistently signaled that it is interested in some kind of engagement with the Obama administration, at the same time, by showing off their new nuclear facilities.

The message is very clear that in the absence of engagement, the North is perfectly happy to move ahead and further develop its nuclear capability, and that, I think, is going to add to the pressure to find some way to open up channels of dialogue and discussion since the alternative is greater tension and more nuclear-capable North Korea.

BLITZER: As we get ready to head off to North Korea, Governor Richardson, China, and we're in China right now. Everyone agrees that China has got to play a much more productive role. They have the -- they're the ones who have the real influence in Pyongyang. Are you satisfied with what China is doing right now to trying to help?

RICHARDSON: Well, I think the record is mixed. And the Obama administration is correct to insist on more Chinese action. They provide China a lot of food, fuel to North Korea. They're a key vote in the U.N. Security council, and you -- having been at the U.N., I know how important it is to avoid a Chinese veto of sanctions and many other actions.

Yes, China is a key player. If there's going to be some kind of engagement, China is going to have to play an important part, but right now, they're sending mixed messages, China is. And so, my hope is that after our trip, we're able to assess maybe ways that we can get some engagement going, but most importantly, get the situation defused here, because it's very tense. It's tinderbox.

And it's important that -- again, you get new voices in, not just government's, but citizens, other international organizations, and this is why I hope we can contribute to stabilizing the situation.

BLITZER: Jack Pritchard, you were just there in North Korea. You served as a Clinton administration official, how serious do you take all this speculation that the recent escalation in tension has something to do with succession from the current leader, Kim Jong-Il to his youngest son, Kim Jong-Eun if that, in fact, is going to take place. Is that part of this equation?

PRITCHARD: Well, I think it is part. It's certainly not the whole part, but when I was there, I think that the couple of messages they were sending. One is that the health of Kim Jong-Il was fine. They invited me to take a look at the pictures of him that perhaps you're showing now going out and inspecting. And they made that transition that they, the leadership level, have accepted the fact that Kim Jong- Eun is going to be the next leader, and they are rallying behind him.

The concerns that you've expressed with Bill Richardson about China, I think, are spot on. Up to now, we've given the Chinese a pass, because we have understood their concerns about the fragility of the regime, but I think in this coming year, having seen what the North Koreans are capable of doing with the sinking of the Cheonan and the artillery shelling of Yongbyon, that the Chinese are going to be forced to step up and provide some reasonable measure of pressure on the North Koreans to behave.

BLITZER: A lot of people are concerned, Jim Walsh, that the Obama administration really doesn't have a whole lot of leverage on China right now to step up to the plate. Are you concerned about that?

WALSH: Well, of course, China is a rising power. We have lots of interests with China. We're trying to get China's help with us in Iran, China's help elsewhere, economic issues, but let me take a slightly different point of view here, and no one knows more about this than Jack, but let me at least offer the other side. And that is, yes, we want China to be engaged.

Yes, they've been able to produce results in the past, but we don't want a situation where China is -- that North Korea sees China as an adversary. Right now, when I visit North Korea, North Koreans express concern about China. Yes, they're a brother, they're an ally, but they are a great power. And North Korea thinks it surrounded by great powers, Japan, South Korea, China, the U.S.

And if the relationship between China and North Korea turns bad, turns sour, then the six-party talks turn into five against one. North Korea will defensive particularly at a time of political transition, and we will make no progress at all. So, yes, China has a role to play, but we don't want them to cross that line where North Korea loses confidence, and then nothing happens at all. So, that's actually a real balancing act for China to pull off.

BLITZER: And Mike Chinoy, the fact that the North Koreans decided (ph) to give me, a representative of CNN, visa, also a reporter from "The New York Times" is going along with Governor Richardson on this trip. You're a reporter, a journalist. You've been there many times. What does it say to you that they're letting these two journalists in?

CHINOY: I think it's clear the North Koreans have some important messages that they want to deliver on the trip and that they want to get out to the general public and to the political elite in Washington. And I suspect the message is going to be we want to talk, and if we don't talk with the United States, there's going to be more trouble to come. I think there's one other really important point, though, Wolf, that needs to be addressed here, and that is in South Korea, you have a government that's had two episodes, the sinking of that ship in March and the shelling of an island a couple of weeks ago where it did not respond militarily.

And now, the South Korean government is under tremendous pressure to get tough, and I think there is a real danger that the South Koreans are almost looking for an excuse to take some kind of military action against North Korea if there is another encounter. And that's a potentially very dangerous situation, and while Washington is publicly standing shoulder to shoulder with Seoul, I think, privately, the American forces in Korea and administration officials will be counseling some degree of caution to prevent South Korea for its own domestic reasons from taking action that could lead to a cycle of escalation that could become even more dangerous.

BLITZER: Yeah, and one miscalculation by the North Koreans or the South Koreans could result in all-out war. The casualties would be in the hundreds of thousands. Something, God forbid, we obviously don't want to see. Gentlemen, thanks very much. Bill Richardson and I, we're going to head over to the North Korean embassy just getting early here Thursday morning in Beijing.

We'll see if they stamp our passports. We hope they will. They told us they will, and then we fly off to Pyongyang. We'll be reporting from the scene over the next four days, Suzanne. We'll let our viewers know what's going on in the United States and around the world. It's going to be a good opportunity for all of us to see North Korea upfront.

MALVEAUX: Absolutely, Wolf. We'll be watching very closely as well as the Obama administration. Thank you so much, Wolf.

We are following some other important stories here in the SITUATION ROOM, including the so-called CEO summit. Details of President Obama's efforts to mend fences with the business community and help the economy.

Plus, incredible bravery as a gunman takes a school board hostage. We have dramatic video of the crisis and its chilling end.

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MALVEAUX: No surprise Congress is on Jack Cafferty's radar today. He is here with the "Cafferty File." Hey, Jack.

JACK CAFFERTY, CNN CONTRIBUTOR: Congress had all year to do the public's business, but they didn't. It's their job to pass a budget. That's what we pay them for. They didn't even bother to try to do that, but check out what they've come up with at the last minute. A $1.1 trillion, 2,000-page omnibus spending bill, put together behind closed doors. The Senate bill would fund the government for a year. It includes more than 6,000 earmarks.

Of course, this all comes only weeks after a lot of the senators swore off of earmarks, remember? The Republicans are blasting the bill calling it completely inappropriate. They say many in their caucus haven't even seen it. Here we go again. Lawmakers haven't even read the thing, but the Congressional leaders are expected to just sail through at the 11th hour. Instead of a government-wide or omnibus spending bill, Republicans are calling for a short-term continuing budget resolution which is similar to what the House passed last week without any pork.

Meanwhile, Senate Majority Leader Harry Reid is threatening to keep commerce in session through the Christmas Holidays and in the next year. He said, quote, "We're not through. Congress ends on January 4th." You see, with just days to go before the Democrats lose their majority in the House, they've decided now is the time to pass the legislation that they haven't gotten around to doing in the past two years. Got an arms treaty with Russia, got the immigration bill, got don't ask, don't tell, got the -- you name it.

It's no wonder that Congress' job approval rating is now at 13 percent. That means 87 percent of us don't like what they're doing at all. Gallup says it's the worst rating that they've ever seen in the 36 years that they've asked the question, 13 percent.

Here's the question, should Congress pass 2,000-page $1.1 trillion spending bill that some members haven't even seen yet? Let along read (ph). Go to the blog and riddle me why that's a good idea -- Suzanne.

MALVEAUX: All right. Thank you, Jack.

We have some chilling video to show you right now. It's maybe quite disturbing. It's very graphic. For children, it may not be appropriate. You're now looking at the final dramatic moments of a hostage crisis in Panama City, Florida. This is where a gunman commandeered a school board meeting. He points and shoots at his hostages, but amazingly, he hits none of them.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: This isn't worth it. Please don't. Please don't.

UNIDENTIFIED MALE: I'm going the --

(END VIDEO CLIP)

MALVEAUX: A school security officer shot and wounded the gunman, and police say that the gunman then took his own life. Well, there is much more to this dramatic standoff including the incredible bravery of the hostages. Our CNN's Brian Todd has more on the story -- Brian.

BRIAN TODD, CNN CORRESPONDENT: Suzanne, the accounts of this incident and the video of it are compelling, but we're also getting some fascinating insight into the psychology at play in that Florida board room.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: You could tell by the look in his eyes, that there was going to be some killing going on.

TODD (voice-over): Even with the gun pointed right at him, school superintendent Bill Husfeld tries to engage a man who had disrupted a Florida's school board meeting with his spray paint, his grievances, and his 9 millimeter handgun.

UNIDENTIFIED MALE: As soon as you gutted the school system, then you turned around and said, oh, now we need this half cent sales tax again.

UNIDENTIFIED MALE: I said we needed a half cent sales tax from the very beginning. I campaigned on that. Oh, yes I did.

TODD: Another board member tries to address the gunman's other complaint. His wife had been fired, he said.

UNIDENTIFIED MALE: Please, talk to us. If I can help to get your wife a job somewhere else, I'll be glad to do that.

TODD: With almost unfathomable courage, the superintended tells the gunman, I'm the only one you're mad at.

UNIDENTIFIED MALE: They don't sign the papers. I'm the only one who signs. Will you let them go?

TODD: Experts say if you're facing an unstable gunman --

DR. LISE VAN SUSTEREN, PSYCHIATRIST: That's the first thing you need to do is listen and try to have a theme of fairness. Let's get to the bottom of this.

TODD: In this case, the assailant who police identify as Clay Duke is undeterred.

UNIDENTIFIED MALE: I have a feeling that you want the cops to come in and kill you because you're mad and you want to die. But why? This isn't worth it. This is a problem -- please don't. Please don't. Please.

UNIDENTIFIED MALE: I'm going to kill you. Don't you understand?

TODD: Police say Duke then shot and killed himself. Board members have since been back to the room and seen just how close to them the bullet holes were.

STEVE MOSS, BOARD MEMBER, BAY DISTRICT SCHOOLS: If you look at the video, his last two shots he fired, he was almost leaning over right where I was sitting, one hit my board book and my papers on my desk. I was laying down, and it was inches from where I was laying.

TODD: Then, there's Ginger Littleton who, in the video, sneaks up on him from behind and tries to knock the gun out of his hands.

UNIDENTIFIED MALE: Ginger, no.

GINGER LITTLETON, BOARD MEMBER, BAY DISTRICT SCHOOLS: Probably not one of the smartest things I ever did. I don't know why he didn't pull the trigger.

TODD: It's the psychological piece that makes this such an extraordinary story. How the group dynamic came together in a few crucial seconds and how it informs us about dealing with hostage situations. Psychiatrist, Lisa Van Susteren who's dealt with several criminal cases has hyper phrase.

The response of these people psychologically was extraordinary at that moment, right?

SUSTEREN: It certainly was. This is one emotionally sophisticated group of people looking out for each other rather than giving into the impulse simply to protect themselves to survive.

(END VIDEOTAPE)

TODD (on-camera): Van Susteren says one of the mistakes made was when Superintendent Bill Hosfeld (ph) told gunman, Clay Duke (ph), that he thought Duke wanted the police to come in and kill him. She says in that situation, you don't necessarily want to question an assailant on his thinking. It was right after that comments that Duke started shooting -- Suzanne.

MALVEAUX: Thanks, Brian.

More than two dozen people killed in a ship wreck. Survivors are accounting a horrifying nightmare at sea.

And a storm on earth, an amazing find, a piece of history thousands of years old.

(COMMERCIAL BREAK)

MALVEAUX: A wooden boat carrying dozens of refugees shatters in stormy seas. Our Kate Bolduan is monitoring that and some of the other top stories coming that are coming into SITUATION ROOM right now. Hi, Kate.

KATE BOLDUAN, CNN CORRESPONDENT: Hey, there. It's very sad story, but amazing video, though. We just have to show you. At least 27 people, and you're looking at the video here, 27 people are dead after their boat was dashed to pieces against the rock near Australia's Christmas Island. Rescuers pulled 41 survivors from the water, and another person was actually able to swim to shore. Most of the people are believed to be asylum seekers from Iran and Iraq. Horrified witnesses say they thought children floating in the water. Australia plans an investigation.

And Vice President Joe Biden is hailing the end of U.N. sanctions on Iraq that date from the Saddam Hussein era. The U.N. Secretary Council today voted to end the controversial oil for food program to remove restrictions on the sale of nuclear technology to Iraq and international management of Iraq's oil and gas revenue next year. Biden who chaired the U.N. meeting says Iraq is forging democracy and development.

And more than two dozen protestors could face charges after Rome was rocked by riots. Demonstrators took to the streets yesterday, and they're furious that controversial Prime Minister Silvio Berlusconi survived a new confidence vote in parliament. Mr. Berlusconi is shrugging off the protestors, though, saying they are mainly, quote, "hooligans."

And finally, an incredible discovery to show you. A huge storm collapse part of a cliff in Israel. That caused an ancient statue, you see the video of it right there, buried in the cliff to tumble into the sea where a passerby spotted it. The white marble statue of a woman is believed to be 2,000 years old dating back to the Roman times, Suzanne. Isn't it amazing?

MALVEAUX: Wow. Incredible find. Amazing stuff. Thanks, Kate.

They have a troubled history. Can President Obama repair relations with big business and join forces to spur the economy? Details of his CEO summit.

Plus, how doctors eliminated HIV from one patient and why it's not a cure.

(COMMERCIAL BREAK)

MALVEAUX: Jobs and investment on the agenda as President Obama met with the chief executives of 20 leading American companies in what's being called a CEO summit. Our CNN White House correspondent, Dan Lothian, is joining us live with details.

Dan, I know it's been somewhat of a rocky relationship for the president and the business community. Do they think they accomplished something today meeting with him again? Do we see kind of a thawing, if you will?

DAN LOTHIAN, CNN CORRESPONDENT: Well, they certainly did see a change in that relationship. As you pointed out, one official told me today, you know, this relationship has been very difficult and has been, quote, "strained." And so today, it was a chance to really mend that relationship to begin a two-way dialogue to turn the page and move forward.

(BEGIN VIDEOTAPE) BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Well, I definitely...

LOTHIAN (voice-over): President Obama took a few short steps to the Blair house to find long-term solutions for the ailing economy.

OBAMA: I hope to elicit ideas from these business leaders that will help us not only climb out of recession, but to seize the promise of this moment.

LOTHIAN: Twenty CEOs from companies like G.E., American Express and Google brainstormed with the president on the economy, the deficit and trade. The session was an overture to the president' corporate critics who have been less than enthusiastic about his economic policy.

MALVEAUX: Is it good -- is it good for big business like yours?

KAY KRILL, CEO, ANN TAYLOR: Hmm, do I have to answer that?

DAVE COTE, CEO, HONEYWELL: It's been a very strained environment to try to build any kind of relationship.

LOTHIAN: Uncertainty was one of the biggest concerns, causing companies to sit on nearly $2 trillion, instead of expanding and hiring new workers.

ROB NICHOLS, FINANCIAL SERVICES FORUM: What will the future tax rates be? What will the regulatory environment be? What sort of trade policy and what sort of market openings will be out there?

LOTHIAN: Honeywell's CEO Dave Cote said everyone was gun shy.

COTE: You can't afford to get caught short. You spend the money, the money is gone, demand is not there.

LOTHIAN: Executives where also turned off by the president's tough talk, routinely railing on fat cats and big bonuses.

OBAMA: That is the height of irresponsibility. It is shameful.

LOTHIAN: The pro-business Chamber of Commerce raised millions of dollars for the GOP, helping to drive a Republican surge in the midterm elections, but a top White House aide said the administration had recently made, quote, "real inroads" with the business community. And CEOs at the meeting agreed, pleased with the president's tax-cut agreement, the recent South Korea trade deal , and the face of economic recovery.

OBAMA: And they feel optimistic that, by working together, we can get some of that cash off the sidelines.

(END VIDEOTAPE)

LOTHIAN: Now the big question is how quickly will that cash start flowing back into the marketplace? One expert told me that you can't really put a time line on it, but the bottom line here is that he believes these companies want to spend, because that's how they can boost their profits. Banks want to make more loans, because that's how they make more cash. And so ultimately, if you can restore more confidence in the marketplace, then that's when they'll start spending the money -- Suzanne.

MALVEAUX: All right, Dan. Thank you so much. I want to bring in our CNN national political correspondent Jessica Yellin and CNN senior political analyst David Gergen.

First of all, I had a chance to actually talk with one of the CEOs who met with President Obama. This was Greg Brown. He's the CEO of Motorola. And I asked him, now with this -- if the tax deal gets passed, the top two percent of income earners are going to be able to get a tax break as well as everybody else. Is that going to impact his ability to actually create jobs? Here's how he responded.

(BEGIN VIDEO CLIP)

GREG BROWN, CEO, MOTOROLA: I don't think that we at Motorola would make a hiring decision based on the extension of the Bush tax credits, if that's what you're asking. I don't think it's that.

I think whether we grow is depending upon the market conditions that we're operating in, the competitive landscape, the demand for our product. There's a lot more things that will be important to whether we hire and invest.

Overall corporate tax reform, R&D tax credit. Let's get the Korean free trade deal approved. Let's follow on quickly, hopefully, with Panama and Colombia. So I think those are the bigger areas that will create an overall climate for sustainable economic growth, and those among other things are some of the things we talked about today.

(END VIDEO CLIP)

MALVEAUX: So the back and forth that's happening here inside of Washington, inside the Beltway over the tax deal and this notion of creating jobs, it seems as if this CEO is saying that it's not really going to have a large impact. Does that surprise either one of you?

JESSICA YELLIN, CNN CORRESPONDENT: Well, I'm not surprised that he would say the tax cuts alone won't spur hiring. What they've been clamoring for, the business community, is a lot -- more clarity about what's coming next.

MALVEAUX: Sure.

YELLIN: And so, were they were not to, first of all, not to pass these tax extensions, imagine what he'd be saying then. What would be happening to job creation then?

But beyond that, what they want is a sense that these are going to continue, and the rest of these changes that he was talking about, the Korean trade deal, for example. A Boeing CEO came out of the meeting today and said they're going to be hiring 4,000 to 5,000 more people next year because of that trade deal. So they're seeing a lot more from the administration that they wanted which is this clarity about what's coming next and just the simple fact that they're listening is going to make a difference.

DAVID GERGEN, CNN POLITICAL ANALYST: I think that's right. The tax cuts, the tax package, many economists believe will actually increase growth modestly. And that's going to help create jobs, and that will bring some hiring.

But these CEOs have been very, very alienated by the rhetoric that's come out of the administration by the degree of uncertainty, and by the sense they haven't felt that they -- they felt like they were pushed aside and they were being dismissed, and in fact, many feel that the president doesn't really like CEOs.

And so I think to have a four-hour meeting, as he did today, was important. I've talked to a couple of participants on the White House side, and they weren't certain going in. They really came out encouraged by what happened, but they realized a lot more needs to be done, beyond one meeting.

MALVEAUX: I think it is going to take some time, because he has had CEOs at the White House before. He's listened, and then they've been disappointed, so we'll see how -- how much time this takes.

But Jessica, you and I covered President Bush, and Bush and Cheney, they were always criticized for being too cozy with big businesses. Now you have the Obama administration that is facing really the opposite. I mean, which one do you think is more politically costly?

YELLIN: Well, they're costly with different constituencies. I mean, President Bush had a pretty good relationship with business, but it lost him some of the populists out there.

President Obama has not had a great relationship with business, but the problem for him is, he doesn't have a great relationship with the populists either. I mean, you'd think that at least he could leverage his tough rhetoric with the -- against the rich into some support among his progressive base, but his problem is he hasn't gotten enough juice out of it.

MALVEAUX: What does he need to do, David?

GERGEN: Well, I think the president is right in identifying all this money that's sitting on the sidelines. That corporations are not investing is a critical problem, and he has to create a greater sense of confidence on their part, a great sense of certainty. They don't know what regulations are coming out on health care, financial regulations, a lot -- climate (ph), a lot of other issues.

I actually -- and I also think he needs a couple of heavyweights, one from the manufacturing area and one from the financial community, in this administration at high levels who are there at the table when decisions are made.

YELLIN: And that's what you hear from the CEOs and Wall Street officials all the time, which is that they feel like they don't have an advocate inside the administration who had met payroll, who knows what it means to be on the front lines of making hiring decisions. And they say this administration confuses what a CEO is with economists. They're not the same thing, and they'd like one of theirs on the inside.

GERGEN: Right. But I do think give credit. I mean, Valerie Jarrett set this meeting up today and giving -- putting four hours of the president's time into this shows he's serious. So it's a first step, and I think they're hoping they're setting the re-set button in the relationship.

A key ally of Washington faces shocking allegations of organ theft from prisoners of war and drug trafficking. What could this mean for U.S. relationships with Kosovo?

And find out which cribs may be dangerous for your children. The government is banning them. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: Suicide bombers target a mosque in Iran. Kate Bolduan is monitoring that and some of the other top stories that are coming into THE SITUATION ROOM right now.

Hey, Kate.

KATE BOLDUAN, CNN CORRESPONDENT: Hey there, Suzanne. Lots going on. But first this: President Obama calls today's bombings in southeastern Iran despicable and cowardly. At least 32 people were killed and dozens wounded when suicide bombers set off their explosives at the mosque. Authorities say one suspect is in custody. The violence comes as Shiite Muslims commemorate the martyrdom of the Prophet Mohammed's grandson in 680 A.D.

Also, the U.S. government is suing BP over the catastrophic oil spill in the Gulf of Mexico. The Justice Department says the oil giant and several other companies failed to take necessary precautions to prevent last April's Deepwater Horizon oil rig explosion. An estimated 205 million gallons of crude oil gushed into the Gulf. BP is already facing dozens of other lawsuits in what is known as the worst oil spill in history.

And as of next June, you won't be able to buy cribs like these that you're seeing right here in the U.S. The Consumer Products Safety Commission voted today to ban the drop-side cribs because of safety concerns. Regulators say infants can become trapped in the cribs and suffocate. There have been at least 36 such deaths since 2007.

And scientists have sought -- have sought a cure for the AIDS virus for decades, and now researchers in Germany say they may have cured -- cured, actually cured -- a 44-year-old American infected with HIV. He also had a rare form of cancer. Doctors wiped out his immune system with chemotherapy and gave him a bone marrow transplant. They say that got rid of the cancer and the HIV, but they do caution that the treatment is quite risky and is not a cure for all HIV or AIDS patients.

Pretty amazing, though. Not only did they beat the cancer, but they wiped it out.

MALVEAUX: Some of the scientists say it's not a practical solution, but certainly for that individual, it worked.

BOLDUAN: Seems like it's pretty drastic.

MALVEAUX: All right. Thanks, Kate.

A U.S. ally accused of shocking crimes: stealing human organs from prisoners and selling them.

Plus, a purse-wielding hero tries to end a hostage crisis. CNN's Jeanne Moos takes a Most Unusual look.

(COMMERCIAL BREAK)

MALVEAUX: Just days after Kosovo's controversial parliamentary election, the U.S. ally's prime minister is facing some shocking accusations that he led a mafia-like ring that stole organs from war prisoners and trafficked illegal drugs. Kosovo's government is blasting the report.

I want to go to our CNN foreign affairs correspondent, Jill Dougherty, at the State Department.

Jill, what do we know about this?

JILL DOUGHERTY, CNN CORRESPONDENT: Well, see it is very disturbing and, you know, just backing up, Kosovo declared independence, as we remember, in 2008, and the U.S. recognized it very quickly, but there were other countries that did not. For instance, Serbia and Russia. And that war really tore at the heart of Europe. It hasn't healed yet and now this very disturbing report.

(BEGIN VIDEOTAPE)

DOUGHERTY (voice-over): The allegations are blood curdling: human organs like kidneys allegedly stolen from prisoners of war and political rivals of the Kosovo Liberation Army during Kosovo's war for independence from Serbia in the late 1990s. It's all in a draft report from the Council of Europe.

Numerous indications seem to confirm, it says, organs were removed from some prisoners to be taken abroad for transplantation.

The report says nearly 2,000 people disappeared during the conflict and have never been found. Even after NATO troops arrived in 1999, it says another 500 disappeared. The report zeroes in on Kosovo's prime minister, Hashim Thaci, seen here meeting with Vice President Biden this summer in Washington.

JOE BIDEN, VICE PRESIDENT OF THE UNITED STATES: George Washington of Kosovo.

DOUGHERTY: He was the KLA's political head during the 1990s. The report calls Thaci the boss of affection with criminal ties.

The government of Kosovo says the allegations are false, "constructed to damage the image of Kosovo and the Kosovo Liberation Army."

Previous investigations did not yield any proof of organ harvesting by KLA forces.

CNN asked the State Department whether the draft report raises new questions.

P.J. CROWLEY, STATE DEPARTMENT SPOKESMAN: We take all credible allegations of criminal activity very seriously, and any evidence and sources cited in this report should be shared with competent authorities to conduct a full and proper investigation.

DOUGHERTY: During the Kosovo war, the U.S. and NATO supported the Kosovars. Russia supported Serbia. And the Russian foreign minister said Wednesday Moscow is very concerned about the report.

Serbia's ambassador to the United States, Vladimir Petrovic, tells CNN...

VLADIMIR PETROVIC, SERBIAN AMBASSADOR TO U.S.: These are some really, really serious allegations. Allegations of human trafficking, of trafficking of human organs and nowadays I mean, it's just -- we're outraged by these reports, and we're encouraging all the players to step in and do a serious investigation on this.

(END VIDEOTAPE)

DOUGHERTY: Now the report says investigators are not getting enough cooperation either from Kosovo or from neighboring Albania. There are investigations ongoing into war crimes, but the officials now are saying what's really necessary is concrete facts to back up these shocking allegations of stealing human organs -- Suzanne.

MALVEAUX: Very serious charges. Thank you, Jill.

Should Congress pass a 2,000-page $1 trillion spending bill that some members haven't even seen? Well, Jack Cafferty is next with your e- mail.

And she took on an armed man with her purse. Our CNN's Jeanne Moos takes a "Most Unusual" look.

(COMMERCIAL BREAK)

MALVEAUX: Time now to check back in with Jack Cafferty -- Jack.

JACK CAFFERTY, CNN ANCHOR: The question this hour is: "Should Congress pass a 2,000-page, $1.1 trillion omnibus spending bill that some members haven't even seen?" You can't make this stuff up.

Chris writes, "Should they work through January 4 if necessary? Absolutely. Should there be a budget every year? Absolutely, no matter which party is running the show. Read every page of every bill? Well, that would be nice. Maybe if they didn't make things so complex, the bills wouldn't be so long. I know I'd want to rip my eyes out after reading 2,000 pages. But that's why they get paid. Both parties are amazing at just kicking the can down the road."

Gretchen in Toledo, Ohio: "I'm a disenchanted moderate Democrat who's sick and tired of congressional shenanigans. I fully support my president and his policy-making judgment. On the other hand, I have serious doubts about the integrity of many members of Congress and what motivates them. Your question causes me to wonder how often legislation is passed without being seen by some members. And why."

Jim asks, "Who's going to teach the Republicans how to read?" Ooh.

John says, "How's this even a question? Of course not. It's a disgrace that they try to do anything in a lame-duck session. Name another job in the world where you get fired and then, for the next nine weeks, you get to come in and make financial decisions on behalf of the shareholders. The law needs to be changed. Eliminate the lame-duck Congress."

C. writes, "A new congressional rule: You can't vote till you've passed a quiz on what's in the bill. That will keep them shorter and thinner. Maybe. On the other hand, they'd probably just copy each other's answers."

Staci in Oregon: "It's too sad for words, Jack. There's not a thing Americans can do or say which will make any difference. Integrity is no longer a concern. Isn't that something?"

And Mike writes from Jensen Beach, Florida, "Asking politicians which bills they read is like asking Sarah Palin which newspapers she reads."

If you want to read more on this, go to my blog -- Suzanne.

MALVEAUX: All right, we'll be reading it, Jack, thank you.

Facebook's inventor, well, he may be "TIME" magazine's Person of the Year, but everybody is talking about Ginger. Yes. Call it daring, call it crazy. How he tried to stop a gunman from hurting her colleagues, armed only with her handbag. That up next.

(COMMERCIAL BREAK)

MALVEAUX: Here's a look at "Hot Shots."

In Germany, a house decorated for Christmas twinkles in the evening light.

In Moscow, police stand guard around government buildings in preparation for possible riots.

In Florida, a plant covered in ice glows in the morning sun.

And in another part of Germany, white lion cubs are bottle fed by a zookeeper.

"Hot Shots," pictures worth a thousand words.

Well, you don't want to mess with Ginger. The Florida woman took on a disgruntled gunman only armed with her handbag. Our CNN's Jeanne Moos has the tale of this "Most Unusual" hero.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): Ginger Littleton is holding it close. Waving it victoriously. Pulling mundane things like tissue out of it. But this is more than a purse.

GINGER LITTLETON, ATTACKED GUNMAN WITH PURSE: This is the weapon.

MOOS: A hand-me-down that Ginger tried to use on the hand of a gunman.

CLAY DUKE, GUNMAN: No, Ginger. Ginger, no.

LITTLETON: He points the gun at my head and says, "You stupid (EXPLETIVE DELETED)."

MOOS: She says she agrees with the stupid part. Self-defense experts call what she tried to do both stupid and dangerous. Still, she's getting the hero treatment.

UNIDENTIFIED FEMALE: Girlfriend, you are something!

MOOS: And so is her bag.

LITTLETON: Shall I do my Vanna?

UNIDENTIFIED MALE: We're going to put some bricks in it for her.

MOOS: When the gunman ordered all of the women out of the school board meeting...

DUKE: You may leave, you may leave.

MOOS: ... Ginger waited about 30 seconds in a hallway before creeping back and...

UNIDENTIFIED MALE: Hitting him with her purse.

UNIDENTIFIED FEMALE: Used her purse.

UNIDENTIFIED FEMALE: Whacked Duke defiantly with her purse. MOOS (on camera): The purse was a hand-me-down from Ginger's 89-year- old mother-in-law. Why did her mother-in-law give up such a nice purse?

LITTLETON: She said it was too heavy for her.

MOOS (voice-over): But not heavy enough to knock the gun out of the gunman's hand. This is the kind of thing you saw on "Laugh-In."

ARTE JOHNSON, ACTOR: Do you believe in love at first sight?

MOOS: Making it all the more shocking to see it done in desperation.

(on camera) A lot of us carry bags that are heavy enough to use as weapons. What did Ginger have inside hers?

LITTLETON: I have a lot of keys that weigh probably 2 pounds.

MOOS (voice-over): A nice heavy wallet, a cell phone, a compact.

LITTLETON: Bills I should be paying.

MOOS: We asked if it was a designer bag she used to wallop the gunman.

LITTLETON: Are you kidding me?

MOOS: Well, turns out, it's a Brahmin, one of their discontinued bags that sold for $385 as part of the Toasted Almond collection.